bond price , please show how to calculate question b

You've learned how to compute price elasticity with respect to changes in interest rates (modified duration) of a bond under the flat term structure of interest rates, and parallel shifts in the term structure. In this problem, you are asked to compute the price elasticity of a bond under a non-flat yield curve. The present value (price) of a bond is B =[# 1 (1+r)" CF Now consider the parallel shift of the yield curve by x, i.e. rt + rt+, Vt. Then the price elasticity of the bond with respect to parallel shifts in the yield curve can be written as PE = 1 db=t=1 (1+rojet txCF We can now approximate price changes in response to a small parallel shift Ar in the yield curve as -x (PE| x Note that when the yield curve is flat, the absolute value of price elasticity |PE| equals modified duration. Consider the following term structure, which is upward sloping: 1-yr 2-yr 3-yr 4-yr 5-yr 2.1% 2.4% 2.67% 2.88% 3.06% A 5-year Treasury note (T-note) has a face value of $100 and a 2.62% coupon rate (assume annual payments). (a) Compute the price of the T-note. 98.09 (b) Suppose that the yield curve suddenly shifted down by 0.25% (this is a parallel shift, all points on the yield curve shift by the same amount). Compute the new price of the T-note and report the price change relative to the original price computed in (a). 99.14 X